What is the difference between Statutory Interpleader and Rule Interpleader?

There are several differences but we’ll focus on one major difference in this post – – the power of federal courts to hear these cases. By power to hear a case we mean “subject matter jurisdiction.”

So first, what’s an interpleader lawsuit? Interpleader is where one party (a stakeholder) causes other parties (competing claimants) to litigate against each other – – ususally because the competing claimants each claim property in the stakeholder’s possession. The idea is that the stakeholder faces potential lawsuits from the competing claimants and to avoid these lawsuits he causes the competing claimants to litigate over the property.

For example, let’s say a mechanic finishes repairing a car but then two (or more) drivers demand that the mechanic gives them the car. Each driver claims to be the real owner of the car. The mechanic is a stakeholder and the drivers are the competing claimants – – if the mechanic gives the car to the wrong driver, or fails to give the car to any driver, he could be sued by the competing claimants. In this situation the mechanic should interplead the drivers and force them to litigate against each other so a court can decide who is the true owner of the car.

Both state and federal courts allow interpleader actions.

Federal Courts can Hear Two Types of Interpleader Lawsuits

Interpleader in the federal courts is slightly tricky because there are two types of interpleader: Statutory Interpleader and Rule Interpleader. One important point is that subject matter jurisdiction for Statutory Interpleader is different from subject matter jurisdiction for Rule Interpleader.

Rule Interpleader

Rule in this case means Federal Rule of Civil Procedure 22. A federal court can hear a Rule Interpleader case if there is (i) complete diversity; and (ii) the amount in controversy is greater than $75,000. Complete diversity means that the stakeholder is not a citizen of the same state as any of the competing claimants. Amount in controversy means the value of the property that the competing claimants are arguing over.

For example, let’s say a storage company is a citizen of California and it is storing $100,000 worth of jewelry. Two parties from states other than California demand the jewelry, each claiming to be the rightful owner. This case satisfies the requirements for Rule Interpleader because we have complete diversity and the amount in controversy is greater than $75,000.

Pursuant to Rule 22, the storage company, as stakeholder, may cause the competing claimants to litigate against each other in federal court. If one or more of the competing claimants were also from California, there would be not be complete diversity.

Statutory Interpleader

Statute in this case means a law passed by Congress. The statute we are referring to here is 28 USC 1335. The statute allows federal courts to hear cases with (i) minimal diversity among the competing claimants; (ii) where the property in dispute is worth more than $500 (there are other provisions which we won’t discuss in this post). Minimal diversity here means that at least two competing claimants are citizens of different states. The stakeholder’s citizenship does not matter.

Looking at our example above, if there were four competing claimants for the jewelry, three from California and one from New York, the storage company could bring a statutory interpleader case. Why? Because at least one competing claimant is a citizen of a state different from at least one other competing claimant. Also, the value of the property is greater than $500. If all of the competing claimants are from the same state, then Statutory Interpleader is unavailable.

Below is a chart summarizing the differences with respect to subject matter jurisdiction. There are some other differences which we’ll get to in a separate post.